Blow to RBS shareholders as US judge dismisses case

Royal Bank of Scotland shareholders who are threatening a £3.3bn lawsuit
against the lender and its former directors have been dealt a blow after a
US court dismissed similar allegations that the bank misled investors.

US preference shareholders filed a class action against RBS, its directors and advisory banks in 2009.Photo: Getty Images

By Philip Aldrick and Jamie Dunkley

9:51PM BST 05 Sep 2012

US preference shareholders filed a class action againstRBS, its directors and advisory banks in 2009 on the grounds that the defendants had been “materially false and misleading because they did not disclose the extent of RBS’s sub-prime exposure, misrepresented the veracity of RBS internal controls and provided an inaccurate assessment of RBS’s acquisition of ABN Amro”.

However, a ruling late on Tuesday by Judge Deborah Batts in a New York district court found that there had been no “material” mis-statements or omissions and dismissed the case “in its entirety”.

The decision came just days after it emerged that UK shareholders who took part in the bank’s £12bn rights issue in 2008 were trying to pull together the funds to launch a class action lawsuit of their own.

UK shareholders believe the rights issue prospectus gave a false description of the bank and its balance sheet at the time. The US suit only referred to the rights issue in passing, noting that “management continued to tell investors the businesses acquired in ABN were good, synergised well with RBS and improved RBS’s opportunities going forward”.

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The US case appears to have been weakened by the fact that the claim related to preference shares bought in 2006 and 2007 in the belief that RBS had sufficiently robust controls in place to prevent the disastrous events that followed.

The UK case relates to statements made just six months before the bank was part-nationalised and after the sub-prime crisis had begun. RBS is 82pc state-controlled following a £45bn taxpayer bail-out.

Separately, RBS yesterday revealed plans to cut 5pc of the workforce at Direct Line Group, the insurance business it is expected to float next month. RBS said the 891 proposed redundancies formed part of its plan to save £100m in annual costs by 2014. The cuts are likely to include about 500 workers at its Teesside call centre, which is being closed.

Direct Line, which is the UK’s largest motor insurer, employs 15,000 workers in the UK. It described the cuts as the “first phase” of its cost-saving plan – suggesting more jobs will be lost. Paul Geddes, chief executive, said the company had begun a “full consultation with affected employees and their representative bodies”.

Direct Line Group boasts a collection of some of the UK’s best-known insurance companies, including its flagship brands Direct Line and Churchill, as well as Privilege, Green Flag and NIG. RBS was ordered by European regulators to either sell or float the unit by 2013 – a direct consequence of taking state aid.

Analysts say the combined businesses could be valued at between £3bn and £4bn and would break into the FTSE 100 if listed.

RBS aims to sell a minority stake in Direct Line through an initial public offering in the second half of 2012, followed by another sale in 2013, which will take its holding down to below 50pc.